Theory question 111
Balance of Payments and Exchange RatesSection B (answer four questions only from this section)
Explain each of the following terms: (a) Export promotion (b) Depreciation (c) Terms of trade (d) Balance of trade
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(a) Export promotion: government measures to increase the volume and value of exports, e.g. export subsidies, tax rebates, trade fairs, export credit and better quality control.
(b) Depreciation: a fall in the value of a country's currency in terms of other currencies under a floating exchange rate (also: the fall in value of capital assets through wear and tear).
(c) Terms of trade: the rate at which a country's exports exchange for its imports, measured as (index of export prices ÷ index of import prices) × 100.
(d) Balance of trade: the difference between the value of a country's visible exports and visible imports in a period; it is favourable (surplus) if exports exceed imports.
Give a definition and a short example or formula for each.